Scott Pilutik

I am an attorney and consultant living and working in Manhattan, focusing primarily on church/state constitutional law. I'm a recognized expert on the Church of Scientology organization. I also have strong interests in intellectual property law where it intersects with emerging media, and free speech.

The Case for Inurement Against the Church of Scientology

In the wake of Lawrence Wright’s New Yorker article on Scientology in February 2011, additional allegations were revealed by Tony Ortega in the Village Voice that former Sea Org member John Brousseau had customized Harley-Davidson motorcycles belonging to Tom Cruise and David Miscavige and an S.U.V. belonging to Cruise – and this time there were photos to prove it. While this may seem minor when compared to the allegations of physical beatings and imprisonment revealed by the St. Petersburg Times 2009-2010 series Inside Scientology; the legal implications of Brousseau’s evidence is quite substantial. The response from Scientology was likewise telling in regards to this claim, together with allegation that Miscavige is living like a televangelist, that triggered the most strenuous objection from the organization, who “vigorously objects to the suggestion that Church funds inure to the private benefit of Mr. Miscavige.”

There is a good reason this particular allegation triggered the most vehement reaction from Scientology: of all the transgressions documented by Wright, those implicating inurement are the most immediately detrimental to their tax exempt status. Religious entities considered exempt under Internal Revenue Code § 501(c) (3), as is Scientology, may not operate for the benefit of private individuals or interests. The IRS web site explicitly states, “no part of the net earnings of a section 501(c) (3) organization may inure to the benefit of any private shareholder or individual.” [emphasis added]

Few organizations know this better than Scientology, having been denied tax-exempt status on the basis of inurement before. In the decades prior to finally being awarded exempt status in the early 1990s, Scientology waged a war against the IRS. One of the more significant battles in that war was the Founding Church of Scientology v. United States case [188 Ct. Cl. 490 (Ct. Cl. 1969)] in which the Court of Claims found that Scientology’s finances were merely a personal compensation to benefit L Ron Hubbard (nearly 10% of its gross income, in fact). There is no shortage of additional precedent: See, e.g., Basic Bible Church v. Commissioner, 74 T.C. 846 (1980) (Court found inurement where nearly $33,000 received in contributions, more than $31,700 impermissibly benefited pastor for travel, home expenses); Southern Church of Universal Brotherhood Assembled v. Commissioner, 74 T.C. No. 89 (1980) (Court found a substantial amount of church income paid ministers’ and family’s rent and living expenses).

As we know, the Scientology offensive didn’t cease until the IRS finally relented in 1993 and granted them their long sought-after tax exemption. As we also know, both parties have since been notoriously tight-lipped as to the terms and context for the ostensibly “secret” deal. The IRS’s reversal of its stance on Scientology’s tax-exempt status was not only delivered in secret, it came sans any explanation as to what legal basis supported the reversal. Additionally, the IRS has subsequently defended the secrecy of their undisclosed agreement with Scientology (most notably in the Sklar I and Sklar II proceedings against the IRS).

The IRS has never offered an affirmative reason why they abruptly deemed Scientology as worthy of exempt status, after spending so many years arguing the converse. The most reasonable and benign excuse is that the IRS, from a resource standpoint, was worn down by the Scientology litigation machine, which had spawned hundreds of lawsuits, all which were withdrawn pursuant to the 1993 secret agreement. But even if one accepts this as an explanation, it cannot also be the objective basis by which Scientology earned its tax-exempt status. The “secret” agreement, which was leaked to the Wall Street Journal in 1997, simply presumes as fact that Scientology is now, suddenly, an exempt organization, with no further explanation to reconcile why they were not only a year prior.

Even if the IRS is remaining mum as to why Scientology suddenly became worthy of exempt status, we do know the bases by which a 501(c)(3) organization can jeopardize its status: (a) if its net earnings inure to an individual; (b) if it provides a substantial benefit to a private interest; (c) if it devotes a substantial part of its activities attempting to influence legislation; (d) if it participates or intervenes in any political campaign on behalf or in opposition to a candidate for public office; or (e) if its purposes and activities are illegal or “violate fundamental public policy.”

Decent arguments can be made that Scientology jeopardizes their exempt status by participating in nearly all of the aforementioned prohibited activities (save intervening in political campaigns). But proving that Scientology is so engaged is difficult for a number of reasons, the most obvious being that the type of behavior which ordinarily jeopardizes an organization’s exempt status requires documentation–documentation the corporately opaque Scientology will not surrender absent a court order. More importantly, Scientology’s natural adversary, the IRS, has essentially rejected its role as a check against Scientology’s abuse of its exempt status. Scientology doesn’t have to worry about disclosing documentation if the IRS is going to intervene on their behalf time and again. This is why a vigorous investigation of Scientology is needed.

Of all the bases undermining Scientology’s claim for exempt status, inurement would, at first glance, seem the most difficult to prove without extensive discovery into Scientology’s internal finances. Nevertheless, Brousseau’s story and pictures are prima facie evidence of inurement because the nature of the prohibited transactions alleged by Brousseau requires little more documentation than what Brousseau has provided–he served as both the quid and the quo in the transactions that bestowed private benefits upon Miscavige and Cruise. The organization pays Brousseau approximately $50 per week (which is legally squared under the “ministerial exception” to labor law, in order that Brousseau and others like him can perform “religious duties”) and Brousseau in turn performs professional, secular services (which would otherwise cost Miscavige and Cruise thousands) to private individuals, such as Scientology’s Chairman of the Board, and the Chairman’s best buddy, Tom Cruise. Simply put, that is inurement, and the IRS should investigate it, along with the dozens of similar stories.

Courts are wary of delving into the manner in which a religion organizes and conducts itself, largely because courts are prohibited by the first amendment from ruling on questions of religious orthodoxy. This wariness provides some wiggle room for religions being investigated for inurement to redefine potentially violating incidents as falling within a religious rubric. Why should a judge categorically prohibit a religious entity from refurbishing the motorcycle it bought for the head of the church? Viewed in isolation, this might be a close question. But the allegations of inurement have steadily mounted for Scientology and Miscavige and a picture is emerging that the IRS is negligent each day it ignores. One unique aspect of Brousseau’s allegation is that Tom Cruise–who is not a religious official–was a beneficiary of Brousseau’s services. Benefits inuring to Cruise do not implicate even a scintilla of grey legal space such as those benefits inuring to Miscavige, because no religious basis–not even a preposterous one–can justify the need for religious “ministers” to customize Tom Cruise’s motorcycles and S.U.V.